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USD CNH

China's yuan fell to its lowest level in nearly eight years and on Tuesday as the dollar climbed on expectations of higher interest rates under President-elect Donald Trump.

The yuan broke through 6.86 per dollar in morning trade, its weakest since December 2008 and taking its losses so far this year to more than 5 percent.

Traders say the People's Bank of China (PBOC) has been taking a hands off approach in the past few days, using the opportunity to release depreciation pressure on the yuan as the dollar rises.

But they do not think Beijing will allow the yuan to fall too sharply in the near-term and risk a political row before Trump is even sworn into office. On the campaign trail, Trump repeatedly accused China of devaluing the yuan to make its exports more competitive and threatened punitive tariffs on Chinese goods.

"We haven't seen central bank intervention for quite some time and that's also why the yuan fell so much recently and broke through key levels easily," said a trader at a big Chinese bank in Beijing.

The PBOC also did not try to press down dollar/yuan midpoint and let the market decide it, which showed it was still comfortable with market movements, the trader said.

The People's Bank of China set the midpoint rate CNY=PBOC at 6.8495 per dollar prior to the market open, weaker than the previous fix 6.8291.

In the spot market, the yuan CNY=CFXS opened at 6.8453 per dollar and was changing hands at 6.8596 at midday, 144 pips away from the previous late session close and 0.15 percent away from the midpoint.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.08, weaker than the previous day's

CNY has depreciated 5.3 percent against the US dollar to be the worst performing Asian currency year to date. Broad based USD strength is seen as the key driver behind the CNY moves.

PBoC intervention in the FX market has been primarily to limit volatility, rather than defending any particular level. Throughout the period of USD strength, the daily yuan fixings have been following the fixing mechanism established in February this year. This is an indication that the authorities are not interfering with the fixings, and are accommodating the dollar strength.

With Trump’s surprise election victory, the PBOC’s monetary policy becomes trickier, and harder to keep neutral. Trumps protectionist policies along with strong fiscal support raise possibilities for earlier than expected Fed hikes adding further depreciation pressure on the Yuan.

China is already grappling with signs of higher inflation. Inflation data released earlier this week showed Chinas October consumer inflation rate rose to 2.1 percent from a year earlier, while producer prices rose a better-than-expected 1.2 percent, the highest since December 2011.

The Peoples Bank of China (PBoC) has held its main rates at record lows for more than a year to support growth. In its quarterly report published on Tuesday, the PBOC said it will maintain a prudent monetary policy, and take steps to prevent asset bubbles in an increasingly leveraged economy. It said that Chinas CPI growth may be around 2 percent this year.

Some of the biggest gains on record for China's yuan sent currency markets spinning on Thursday, driving the dollar broadly lower and threatening to quash one of the central bets of global investors for 2017.

A rise in overnight borrowing costs in Hong Kong to 96 percent helped the yuan rack up the biggest two-day rise for the offshore version of its currency since its launch in 2010.That in turn triggered a broader round of profit-taking on the dollar, sending it more than 1 percent lower against the yen and as low as $1.0575 per euro before a late-morning recovery in Europe.

The offshore yuan gained 0.8 percent against the dollar and traded at 6.8151, driven up by a rising cost of funds in Hong Kong and trading firmer than the onshore spot rate for a second straight day.

The People's Bank of China set the yuan mid-point at 6.8695 against the dollar on Thursday, compared to the previous close of 6.8895.The China Foreign Exchange Trade System sets the weighted average of prices given by market makers. The highest and lowest offers are excluded from the calculation. The central bank allows the dollar/yuan rate to move no more than 2% above or below the central parity rate. Market watchers see a yuan level of 7 against the dollar, USD/CNY, as a key touchstone for sentiment in the near term.

The Chinese yuan rose to near a two-year high on Thursday with USD/CNY at 6.8690 on reports state-owned banks sold dollars on the onshore market.The People's Bank of China set the yuan mid-point at 6.8695 against the dollar on Thursday, compared to the previous close of 6.8895, a day after Moody's downgraded the sovereign rating. The China Foreign Exchange Trade System sets the weighted average of prices given by market makers. The highest and lowest offers are excluded from the calculation. The central bank allows the dollar/yuan rate to move no more than 2% above or below the central parity rate. Market watchers see a yuan level of 7 against the dollar, USD/CNY, as a key touchstone for sentiment in the near term.